Business

Retirees unlikely to see impacts in pension litigation

By Lisa VorderbrueggenContra Costa Times

Posted:
12/10/2013 04:41:47 PM PST

Updated:
12/10/2013 05:28:36 PM PST

MARTINEZ -- The nearly 20,000 people who have already retired from Contra Costa, Alameda and two other counties since more generous pension rules took effect in the late 1990s are unlikely to see their checks drop as a result of California's new anti-spiking pension law.

During oral arguments Tuesday in public employee unions' legal challenge of the law, Contra Costa Superior Court Judge David Flinn pointedly said his pending decision will potentially apply only to those singled out in the disputed 2012 legislation -- workers who retire on or after Jan. 1, 2013.

In a preliminary ruling last month, the judge sided with state attorneys who argued that retirement boards have for more than a decade unlawfully allowed employees to save their vacation and other types of leave, cash it out upon retirement and count the income in their pension calculations.

The judge's broad decision left open the question of whether he would apply his final ruling to the retirees who have already benefited from the rules.

But with Flinn clarifying Tuesday that retirees are unlikely to be impacted, that leaves almost 24,000 active employees who are members of Contra Costa, Alameda, Merced and Marin counties' retirement systems awaiting his ruling.

Passed and signed in mid-2012, Assembly Bill 197 outright banned county retirement systems' controversial practice of counting toward pensions what is called terminal pay, typically unused vacation or other leave workers cash out upon retirement.

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The amount varies by agency, but inclusion of terminal pay in the pension formula boosts retirement checks anywhere from 3 to 24 percent. For the average Contra Costa firefighter or deputy sheriff, it is about 15 percent.

Unions in the four counties sued last December to protect the perk and are asking the judge to keep in place the contested pension formula for everyone hired under the old rules.

The promised benefits spelled out in retirement brochures for more than a decade are vested contractual rights and cannot be taken away, lead union attorney Peter Saltzman argued.

On the other side of the debate, California Deputy Attorney General Tony O'Brien asked the judge to allow the legislation to go into effect.

An unlawful benefit cannot be guaranteed or vested and imposes an "unjustifiable financial burden" on taxpayers, the state contends.

Employees should be refunded any contributions they made toward the benefit, O'Brien said.

Lawyers for retirement boards in the four counties, meanwhile, defended their agencies' decisions to allow the perk as part of legal settlements with public employee unions.

Historically, pensions have been part of the covenant between the public and their servants, who often sacrifice higher pay in the private sector in exchange for retirement security.

That arrangement fell on hard times in the recession of the late 2000s.

Public pension investments suffered big market losses and forced public agencies to divert bigger shares of their revenues to cover retirement system costs.

In response to growing public angst about the pension price tag, Contra Costa's retirement system board eliminated terminal pay for new hires starting Jan. 1, 2011, but didn't retroactively apply the restriction to people who had not yet retired.

The anti-spiking legislation adopted in 2012, however, forced Contra Costa and other county-based retirement systems to vote to withhold terminal pay for everyone who retired after Jan. 1, 2013, regardless of when they were hired.

It was the retirement boards' votes that triggered the public employee unions' lawsuit.

Judge Flinn stayed implementation of Assembly Bill 197 pending his decision, which is expected before the next hearing date set for Dec. 20.

1997-1998 -- In response to court rulings and litigation from public employee unions, the Contra Costa, Alameda, Merced and Marin counties retirement associations expand their public employees' pension-calculation formula to include terminal pay, which consists largely of unused vacation that an employee cashes out upon retirement.Jan. 1, 2011 -- In the wake of mounting public opposition to pension spiking, Contra Costa's retirement board reverses course and bans the inclusion of terminal pay in the pensions for new hires starting on this date.August 2012 -- Legislature passes and Gov. Jerry Brown later signs Assembly Bill 197, which prohibits counting terminal pay in the pension-calculation formula. October 2012 -- Contra Costa retirement board officially interprets Assembly Bill 197 to apply to current workers and not just new hires. Alameda, Marin and Merced retirement boards would come to the same conclusion.Nov. 27, 2012 -- Public employee unions in Alameda, Contra Costa, Marin and Merced counties file lawsuits challenging AB 197.Nov. 29, 2012 -- Contra Costa County Judge David Flinn grants an injunction and blocks implementation of AB 197 pending his decision. (Three of the four cases were later consolidated. Marin's case had advanced too far for consolidation and proceeded on its own.)January -- California Attorney General Kamala Harris agrees to defend AB 197.Nov. 8 -- In a preliminary ruling, Flinn sides with state attorneys and agrees the retirement associations unlawfully included terminal pay in pension calculations. He left open the question of what to do about it.Dec. 10 -- Flinn hears oral arguments on whether retirees and current employees have a guaranteed right to the higher pension benefits that came out of the inclusion of terminal pay even if the retirement associations improperly granted them.